Effects on Russia’s Economy

According to the Wall Street Journal, Russia is experiencing an extreme growth in capital outflow. According to the article, this can be related to the recent annex of the Crimean peninsula. In the first quarter of 2014, its capital outflow should be between $65 billion and $70 billion. This has had adverse effects on the economy. Russia’s economy’s growth has been hindered because the increase in capital outflow has cut into investment spending. With all of the money going out, there is not a lot of money coming in for investments.

An article in the New York Times by Andrew E. Kramer discusses the increase in economic pressure that Russia is imposing on Ukraine. According to the article, about 25% of all of Ukraine’s exports go to Russia. Factories in Ukraine have been benefitting from this. In a series of blogs in the New York Times, Russia’s economy has been suffering at the cost of this situation with Ukraine.

Personally, I do not understand why Russia would be willing to sacrifice its own economy for a crisis with a neighbor. At the same time, Ukraine’s factories are benefitting. The way this crisis is working is that Russia is willing to hurt its own economy and help the economy of its rival neighbor. That does not make any sense. Along with that, Russia’s actions have not been seen as favorable in western eyes. The western world is very important politically and economically. Positive relations with it are crucial to success in the world. Russia is continuing to shoot itself in the foot with this crisis in Ukraine. This country is very strong and has a bright future. Putin is throwing it all away.

In my opinion, Russia should pull out of Ukraine as soon as possible. The country will be viewed more positively by the western world. Furthermore, Russia would be saving its own economy. In order to fulfill its potential, the country would need an influx of investments. The only country that would not benefit would be Ukraine. However, the country would not suffer as much. The larger changes would be in the Russian economy. If Putin were to serve his country well, he would end this crisis with Ukraine at once. His country would benefit immediately. Personally, I do not understand why a political leader would want to hurt the economy of his or her country, but maybe that is why I am not in politics.

2 thoughts on “Effects on Russia’s Economy

  1. viczhou

    I think Russia is confident about its economy, as well as its relations with the Western world, because of its abundance in strategic resources (oil, natural gas, etc). Capital outflow might be just temporary, but European countries’ reliance on Russia’s energy exports is kind of permanent. As a result, countries such as France and Germany might not impose strict economic sanctions on Russia in the long run.

  2. davus@umich.edu'davus

    While Russia does have an abundance of natural resources, the effects of the sanctions will have more of an effect on Russia then it will on the United States. I would agree with a previous post that the best response might be diplomacy to Russia while we export gas and oil to Europe to lessen their reliance on Russia.

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